Schaefer's dire budget picture too cheery, legislature's expert says

October 03, 1990|By John W. Frece | John W. Frece,Annapolis Bureau of The Sun

ANNAPOLIS -- The General Assembly's chief financial adviser put the highest-yet estimate yesterday on the budget deficit Maryland should expect at the end of this fiscal year -- predicting a shortfall almost $70 million greater than the Schaefer administration's last forecast.

William S. Ratchford II, director of the legislature's Department of Fiscal Services, said the budget deficit next summer will be at least $69 million higher than the $180 million last forecast by the administration.

And if war breaks out in the Middle East, and with it come skyrocketing oil prices, a jump in interest rates and a plunge in consumer confidence, the deficit could go as high as $342 million, he said.

Mr. Ratchford said the state has reached the point where it is now spending more money than it is bringing in. The only way to avoid a general tax increase, he said, is to constrain spending over the next two years or longer.

"Until you get the spending side down to your revenues over the next 24 to 48 months, you just won't catch up," Mr. Ratchford warned the Spending Affordability Committee, a 22-member panel set up to recommend each year how much new spending the state can afford in the coming fiscal year.

But budget advisers to Gov. William Donald Schaefer immediately downplayed the report, criticizing Mr. Ratchford's track record in recent years in making budget estimates and saying this time he is simply too pessimistic.

"The prognosis he has is a lot worse than what we feel is actually going to happen," said Dennis H. Parkinson, deputy secretary of budget and fiscal planning. "In my view, I think he is overreacting to the situation. It isn't going to be as bad as he thinks."

Mr. Schaefer, who eagerly made himself available to debunk this latest spate of bad news, said a $150 million deficit -- which was the administration's original forecast ---- amounts to only 1 percent of the state's $11 billion-plus budget.

"I could join the criers and whiners who say the country is going to pot, but I don't see it yet," Mr. Schaefer said. "The state doesn't have to push the panic button."

But H. Furlong Baldwin, chairman and chief executive officer of Mercantile Bankshares Corp. and one of four public members on the Spending Affordability Committee, said he did not think Mr. Ratchford's most pessimistic forecast was nearly pessimistic enough.

"In my 3 1/2 'centuries' in the banking industry, I've never seen a time when we couldn't see the bottom, but we're in a black hole," he said. "This is not a year for heroes. This is not a year for optimism. This is not a time for dance masters."

Mr. Parkinson said that under the Schaefer administration's worst-case scenario -- based on the consequences of a Middle East conflict -- the state could face a deficit next summer of $270 million.

For now, though, state agencies have been ordered to freeze hiring, cancel vehicle replacement purchases, curtail travel and make other belt-tightening moves to cover a deficit recently raised to $180 million. The hiring freeze alone will account for about $100 million of that amount, Mr. Parkinson said.

The deficit is being caused by two problems: a decline in revenue caused by the general slowdown in the nation's economy; and an increase in spending, partly due to higher oil prices but primarily caused by costly increases in programs such as Medicaid and welfare that are driven by unexpected increases in caseloads.

Mr. Ratchford's forecast predicts that the revenue shortfall will be about $50 million worse than the administration believes, and that the deficit spending will be about $10 million to $15 million higher than the administration figure.

He also had bad news concerning fiscal year 1992 -- the fiscal year that starts July 1, 1991, and for which Mr. Schaefer is now preparing a budget for submission to the General Assembly in three months.

Even if the governor does not include the traditional pay raise for state employees in that budget, Mr. Ratchford said, the deficit could reach $237 million. That, he added, assumes that all the deficit problems in the current fiscal year are covered.

If a normal state employee pay raise is factored in, the deficit at the end of fiscal 1992 could be as high as $323 million, he said. And, if the Middle East situation worsens, the deficit could exceed $411 million.

He suggested a variety of ways to cover such a large shortfall, including: increasing tuition at colleges and universities; denying welfare grant increases; denying state aid to private colleges; denying inflation pay increases to community health care providers; continuing the statewide hiring freeze; cutting back on equipment purchases; suspending already scheduled salary or merit increases; and limiting vehicle replacements.

Mr. Parkinson immediately distanced the administration from Mr. Ratchford's list, saying, "Those are clearly his. I don't know if they are the legislature's, but they are certainly not the governor's."

Deficit predictions

Here's a comparison of the budget deficit predictions by the Schaefer administration and by the General Assembly:

Schaefer administration:

Deficit as of June 30, 1991, the end of fiscal 1991

Original estimate: $150 million

Updated estimate: $180 million

Worst-case scenario: $270 million

Deficit as of June 30, 1992, the end of fiscal 1992

No public estimate yet.

General Assembly:

Deficit as of June 30, 1991, the end of fiscal 1991

Deficit estimate: $249 million

Worst-case scenario: $342 million

Deficit as of June 30, 1992, the end of fiscal 1992

Deficit estimate: $237 million

Worst-case scenario: $411.6 million

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